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Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383

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BuyFindarrow_forward

Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383
Textbook Problem

Explain how market forces would determine the money supply under free banking.

To determine

Money supply under free banking.

Explanation

When there is a free-banking system, the banks issue their own notes based on the commodity reserves they have. When there is an increase in the people’s desire to hold more money, the demand for money increases. When people wish to hold more money, they will reduce the current consumption. Under a free banking system, reduction in the spending implies that there is a lack of transaction of money among the people...

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